IBM completes $34B acquisition of Red Hat

Andrew Cummings
July 10, 2019

In offer to its clients the opportunity to merge their private and public clouds, IBM has finally closed the purchase of open-source software provider Red Hat, for a staggering Dollars 34 billion. Red Hat's technology is strategic, though, particularly if you buy into the idea of open-source platforms like OpenStack and OpenShift being more portable than equivalents from the big three public cloud vendors - AWS, Microsoft and Google.

IBM closed its $34 billion purchase of Red Hat, sealing the world's second-largest technology deal ever and setting up the iconic USA technology company on a path to try and compete with top software purveyors in the cloud. "And they need partners they can trust to manage and secure these systems", said Ginni Rometty, IBM Chairman, President and CEO, in the company's statement. For now, IBM is heavily emphasizing its desire to leverage Red Hat's connections in the open source community to scale, with a focus on the hybrid cloud.

"OpenShift should help IBM win new customers and new workloads as enterprises begin to usher mission-critical applications from on-premise to public or private clouds".

"[Businesses] need open, flexible technology to manage these hybrid multicloud environments". The Red Hat acquisition is expected to contribute about 2 points of compound annual revenue growth to IBM over a five-year period, the company said. In the 12 months through the first quarter of 2019, cloud revenue exceeded $19 billion.

IBM has reported shrinking revenue for six out of the past seven years and its new hybrid cloud strategy could help boost growth, according to Bloomberg Intelligence analyst Anurag Rana. Fiscal Q1 2020 revenue came to $934 million, up 15 percent year-over-year. Services revenue also grew 17 percent.

The acquisition of Red Hat further strengthens IBM as the leader in hybrid cloud for the enterprise. Some analysts doubt even Red Hat will save it.

"I think that we have to maintain both sets of products going forward, because a lot of clients are dependent upon them", Kirshna said. The offer price was a 63% premium over Red Hat's then share price of approximately $116. "We've been working with both IBM and Red Hat for years to deliver on that goal, and as they together build the next generation IT company, they will be an essential part of our digital transformation".

Having already fallen behind in public cloud, IBM is now betting big on the so-called hybrid cloud, which allows companies to simultaneously run programs on their own internal servers and the big public cloud providers like Amazon Web Services and Microsoft's Azure.

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